[LFX]

Overnight the USD sold off against all G10 currencies, closing the gap or extending beyond the movements begun yesterday. New Zealand showed dramatic improvement in their current account, actually printing a small surplus for Q2 2009, a feat not seen since Q1 2003. This improvement is likely a function of because of the strong rebound in commodity export volumes while the weak domestic economy reduced real import demand. The kiwi rallied quickly against the USD, helping to turn the tone in risk aversion we saw over yesterday. This has now translated across assets with oil back above $70/bbl, gold over $1000, and equities mixed in Asia, but all higher in Europe.

In terms of European data, the only data point was the Swiss trade numbers, which continued to show deterioration with the surplus falling to 1.79B for August, from 2.21B revised. Last, ECB’s Weber also was quoted overnight saying the behaviour of foreign exchange markets is not out of line with stronger data coming from the Eurozone compared to some other regions. While this is clearly a EUR positive statement, context is difficult to discern as neither the ECB or the Finance Minister really want a stronger EUR and text was not available for this
comment.

[LFX]

The fundamental case for remaining long CAD remains unchanged. The core view is that commodity currencies should benefit through year end on the back of increased risk appetite and improved terms of trade. Relatively speaking, we saw Canada as underperforming the other USD bloc currencies (AUD and NZD); however sentiment toward Canada has been improving lately with stronger domestic data and more lenient language by the BoC with respect to currency strength. USDCAD target is 1.05 and stop is 1.0940, just above the 14 September high.